LAYING DOWN THE LAW – THE LLC ACT, VERSION 2.0 OVERVIEW OF ARIZONA’S NEW LLC LAWS

Christopher J. Charles, Esq.	Andy G. Anderson, Esq.

After a 25-year-long tenure, Arizona’s Limited Liability Company Act will be retiring soon, to be updated by a comprehensive new law signed by Governor Ducey this last legislative session. Attorney Andy G. Anderson and a small group of Arizona business lawyers spent the last two years drafting this new law, incorporating comments and feedback from the business and legal communities.

Generally, the new Arizona LLC Act (the “Act”) is based upon the Revised Uniform Limited Liability Act produced by the Uniform Laws Commission. Uniform laws are advantageous because they provide a wider body of case law as relevant precedent, considering that the underlying statutory language among the adopting states is the same. They also help reduce the amount of litigation, as potential litigants see the results of how judges decide issues in other states that have adopted the Uniform LLC Act. Uniform laws also allow us to participate in a greater wealth of commentary by lawyers and academics from around the country.

Here are the highlights of the Act’s new innovations:

• Centralized list of which statutory default rules can, and cannot, be changed in an operating agreement
• New default rules for member voting
• Statutory indemnification rights for managers
• Standards for fiduciary duties and duty of good faith and fair dealing
• Dissolution procedures for managing creditor claims
• Flexible remedies in derivative actions and institution of special litigation committees to evaluate such claims
• Clarification on treatment of foreign protected series LLCs

The new Act will govern LLCs formed after September 1, 2019, as well as existing companies that opt in. The Act will govern all LLCs after September 1, 2020.

Although your existing operating agreements may largely be compliant with the new Act, be mindful that the new Act will impose its default rules to fill any gaps for issues you have not addressed. For example, if you are currently silent on fiduciary duties in your agreement, the members and managers of your company will be subject to the statutory recitation of the duty of care and fiduciary duty of loyalty, effective September 1, 2020. Likewise, if you have not considered and expressly denied the opportunity to appoint a special litigation committee to evaluate derivative claims by members, then managers will have that tool available to them.

In sum, the new Act provides a more complete set of default rules for those companies without operating agreements, as well as those with very basic agreements that miss out on many issues.

It’s time to dust off your old agreement — or prepare one — so you are confident that your company continues to operate and be governed as you intended. If you or someone you know has questions about LLCs, operating agreements, or any other business matter, please call our office today to schedule a consultation with Andy G. Anderson, Esq.

Andy G. Anderson, Esq. is a business attorney with Provident Law^® based in Scottsdale, Ariz. He works with clients on a range of corporate and commercial transactions. Mr. Anderson received his Bachelor of Science in finance from the W.P. Carey School of Business at Arizona State University in 2006, and he received his Juris Doctor from the James E. Rogers College of Law at the University of Arizona in 2009. He is a member of the Business Section of the Arizona Bar and served on the subcommittee that drafted the Arizona Limited Liability Company Act. Mr. Anderson is also a member of the American Bar Association and the ASU President’s Club, and he serves as the treasurer of the Phoenix chapter of the Christian Legal Society. He was selected to the Southwest Rising Stars list of Super Lawyers^® in 2018. Mr. Anderson can be reached at andy@providentlawyers.com or at 480.388.3343.

Christopher J. Charles is the founder and managing partner of Provident Law^®. He is a state bar–certified real estate specialist and a former “Broker Hotline Attorney” for the Arizona Association of REALTORS^® (the “AAR”). Mr. Charles holds the AV Preeminent^® rating by the Martindale-Hubbell^® Peer Review Ratings™ system, which connotes the highest possible rating in both legal ability and ethical standards. He serves as an arbitrator and mediator for the AAR regarding real estate disputes, and he served on the State Bar of Arizona’s Civil Jury Instructions Committee, where he helped draft the Agency Instructions and the Residential Landlord/Tenant Eviction Jury Instructions. Christopher is a licensed real estate instructor and he teaches continuing education classes at the Arizona School of Real Estate and Business. He can be reached at chris@providentlawyers.com or at 480.388.3343.